Kyle M. Zambarano, Esq., Shareholder, Adler Pollock & Sheehan RC, Providence
Not all civil claims have merit. Of course many do, and if in your practice you defend exclusively against meritorious claims, this article will not be of much assistance. But if you have the opportunity to defend a claim of questionable merit, and you are also faced with significant discovery expenses in that case, a rarely-used procedural option may be available that requires a plaintiff to post security for costs, which may deter a plaintiff from leveraging defense-related expenses in an attempt to obtain a more favorable settlement.
Local Rule Cv 65.2(a) for the United States District Court for the District of Rhode Island expressly permits that court to "require any party to furnish security for costs in an amount and on such terms as are just." Although there is no corollary state procedural rule, a Rhode Island statute originally enacted in 1905, § 9-22-1, permits state courts to order an out-of-state plaintiff to provide "surety of costs" upon a showing of "cause."3 In relation to the defense of claims brought by in-state plaintiffs in state court cases, all is not lost because, as discussed infra, courts have held that they have the inherent power to permit an order requiring security for costs.
An Award of Costs Under Rule 54
Both the federal and state court rules provide for an award of costs to the prevailing party at trial. Rule 54(d)(1) of the Federal Rules of Civil Procedure states the general presumption that "costs—other than attorney's fees—should be allowed to the prevailing party?' Similarly, § 9-22-5 of the Rhode Island General Laws, as well as Rule 54(d) of the Superior Court Rules of Civil Procedure, set forth a parallel presumption regarding an award of costs to the prevailing party.4 Examples of defense costs potentially recoverable under Rule 54 are deposition costs, transcript costs and witness fees.5 Also, some "copying"-related costs of ESI production, such as file format conversion, may also be recoverable under Rule 54.6 While the issue of Rule 54 costs are typically not litigated until after trial, the ability to request security for these costs during the earlier stages of the case, for example during the discovery process, renders Rule 54 directly relevant to discovery disputes. For example, if a plaintiff seeks a Rule 30(b)(6) deposition on numerous varied topics, thereby necessitating the designation of numerous corporate witnesses and resulting in days or even weeks of deposition, that plaintiff bears some real risk that he or she will be required to provide security for the costs associated with that onerous corporate deposition.
Factor Test Governing a Request for Security for Costs
What is expressly recognized by the local federal court in Local Rule 65.2 and in state court in § 9-22-1 is, in fact, a pre-existing, inherent power of the court. Numerous courts - including the United States District Court for the District of Massachusetts in Datatern, Inc. v. Microstrategy, Inc., Nos. U-U970-FDS, 11-12220-FDS, 2016 WL 913152, at *4 (D. Mass. Mar. 9, 2016)7 - have held that trial courts have the inherent power to require security for costs in certain circumstances.8 The foundation for this inherent power lies in the general power to prevent abuse of the judicial system and/or ensure compliance with court orders.9
The District of Massachusetts applies an amalgam of the First Circuit's standard originally articulated in 1984 and a more-specific one articulated in the United States District Court for the Southern District of New York. As stated in Datatern, Inc., 2016 WL 913152, at *4 (quoting Aggarwal v. Ponce Sch. of. Med., 745 E2d 723, 727-28 (1st Cir. 1984)),10 First Circuit precedent requires the weighing of: "(i) the degree of probability/improbability of success on the merits, and the background and purpose of the suit; (ii) the reasonable extent of the security to be posted, if any, viewed from the defendant's perspective; and (iii) the reasonable extent of the security to be posted, if any, viewed from the nondomiciliary plaintiff's perspective."
The District of Massachusetts also marshaled the following six-factor test, noting it was "similar" to the three-factor Aggarwal test11:
(1) the financial condition and ability to pay of the party who would post the bond; (2) whether that party is a non-resident or foreign corpora- t ion; (3) the merits of the underlying claims; (4) the extent and scope of discovery; (5) the legal costs expected to be incurred; and (6) compliance with past court orders.
Courts are free to exercise considerable discretion in relation to requests for security for costs, but that discretion should be exercised either following an evidentiary hearing or based on “concrete proof.”12 Some courts have specified that security for costs should only be imposed in “‘certain exceptional circumstances.’”13 Making security for costs the exception, rather than the rule, seems to be of particular importance where the failure to provide such security results in dismissal of claims in light of the First Circuit’s admonition that “toll-booths cannot be placed across the courthouse doors in haphazard fashion.”14 However, as discussed in the next section, requiring security for costs does not necessarily mean the party should have its claims dismissed for failure to comply with an order requiring security for costs.
The Ability to Pay Factor
The focal point of the analysis in the two decisions applying First Circuit law was the party’s claimed inability to pay the security for the costs. First, in analyzing a trial court’s order requiring security for costs that resulted in dismissal of the plaintiff’s claims, the First Circuit emphasized the need for specific findings, following an evidentiary hearing if necessary, as to a party’s ability to afford the security in question.15 Failure to do so constituted an abuse of discretion because it risks “‘making federal court a court only for rich...